STATE OF THE STATE

It seems the slate subsidy lifeboat has only so many seats
by Burney Simpson

Arising tide lifts all boats. Except a shipwreck. While much of Illinois is enjoying economic expansion, there are still pockets of long-term poverty and malaise. The welfare-to-work program appears to have some wind in its sails, though it is relatively new. But some suffering industries, notably coal, are reaching for life preservers.

In response, legislators launched proposals during their spring session to help those who are struggling, both industries and individuals.

They called for a mix of tax breaks, matching money and outright grants for entrepreneurs. Some would, for example, help utilities upgrade their systems so they can buy and use Illinois coal. Some would promote a potential new state agricultural product. Still others would foster innovative tourism projects.

A few legislators took a different tack, though. They want state financial assistance for poverty-wage workers.

While the motivations behind these two approaches are similar, and simple — a hand up, not a handout — the theories behind them are different. On the one side are those who argue assistance to businesses will generate jobs, benefiting the entire state. Those on the other side believe struggling but industrious individuals should get the first shot at any state assistance.

A tax reduction for individuals was a no-go this spring. But lawmakers were in the mood to help businesses.

It's no surprise that legislators from a pro-business, fiscally conservative state like Illinois favor the first approach. And the mood of the times makes it easier to say no to the perceived welfare deadbeat.

But advocates for the working poor argue legislators also are obligated to turn off the spigot to industry occa- sionally. At some point, they say, the state has to take a cold-hearted look at its support for business and decide whether it is throwing good money after bad.

One thing was clear this spring: A tax reduction for individuals was a no- go. Officials were too busy responding to Gov. George Ryan's $12 billion Illinois FIRST infrastructure plan, which called for tax and user-fee hikes — and business for builders and bond houses.

But lawmakers were in the mood to help a range of start-up businesses.

They proposed $1 million for each of the next 10 years to help develop Illinois' fledgling aquaculture industry. The dollars would go for research and equipment. Only eight Illinoisans are trying to make a full-time go of fish farming, but advocates argue there could be more. They point to Missis- sippi, which has created a $1 billion fish farming industry. And Illinois' lakes and ponds created by worn-out strip mines could be used as feeding pens, they say.

Lawmakers also want to help Illinois' grape growers and wine-mak- ers. They've asked for $2.5 million to promote tourism at 14 wineries around the state.

Meanwhile, Gov. George Ryan has a few economic development ideas of his own. He wants Illinois businesses to earn tax credits if they hire 25 work- ers or invest $5 million in their compa- nies. Economic Development for a Growing Economy (dubbed EDGE) would offer incentives to businesses that are located near the state's borders and are considering moving out of state. There are similar laws in place in Missouri, Indiana and Iowa.

And Ryan would organize regional centers to promote the growth of high- tech industry.

Those ideas join a growing flood of government assistance programs designed to help business, including perennial plans to prop up horse racing. But the big brother of the group is the coal industry. One state bonding program has spent $82 million on 21 projects since 1982. And the Coal Demonstration Program has spent $110 million on 24 projects designed to improve technology and build markets. The program aims to put up 20 percent of the cost of a project with the rest of the money coming from the feds and private industry.

Illinois coal was hit hard by the 1970 amendments to the federal Clean Air Act, which set tough restrictions on the level of pollution that can be released when coal is burned. The high sulfur content of this state's coal makes it more polluting than coal from Western states. Equipment, nicknamed scrubbers, can clean the air, but it's expensive. So utilities

6 / June 1999 Illinois Issues

across the country have been buying Western coal.

To make matters worse for Illinois miners, there are even tougher standards due to take effect next year, under a 1990 amendment to the federal act.

The governor requested $34.5 million to help promote scrubber technology — and Illinois coal. Under the plan, for instance, Springfield-based City Water, Light and Power could match $12.5 million from the state to buy a scrubber. When that is operational in the spring of 2001, the municipally owned utility could buy most of the 1.2 million tons of coal it burns annually from the Turris Coal Co. in nearby Elkhart.

And the governor wants to combine $22 million in state funds with federal and private dollars to build a new coal- burning complex next to the Turris mine. The privately owned plant would be an 80-megawatt, $120 million system that would burn nearly 300,000 tons of coal annually while meeting the new clean air requirements.

Those up-ticks in coal production and sales can't come too soon for a business that's hurting. In the last decade, the number of Illinois miners has dropped by half, from 10,129 to roughly 4,260, according to the United Mine Workers. And unemployment in the downstate coal counties is double that of Cook County's 4.7 percent.

"Coal is an up-and-down industry," says William Hoback, an organizer for the union. "If we can weather the tough times and find innovative answers, we can rebuild the industry."

But there are other difficulties facing Illinois coal besides pollution levels. The deregulation of the power generation and trucking industries has made other energy sources cheaper, according to Richard Kosobud, an economics professor who specializes in environmental issues at the University of Illinois at Chicago.

While the projects are well-meaning, they may not take into account the realities of the coal business. "The state may be subsidizing something that is under serious economic pressure," says Kosobud. "I have great sympathy for unemployed miners. But it could be the money is better spent training the children of miners in new industries."

And despite the millions invested, the state doesn't track the number of jobs retained or created by its coal programs. The Department of Commerce and Community Affairs considers a project successful if it meets the 20-percent-to-80-percent investment target, according to Gary Philo, manager of the agency's coal program. The number of jobs created or retained, or the tons of coal sold, isn't tracked.

But the state does track welfare to work. Since July 1997, when the program was enacted, the state's Department of Human Services has monitored recipients who are trying to move into the workforce. Those not meeting certain requirements will be knocked off the rolls after five years.

All manner of stats are available. So far, they look promising. Nearly 90,000 families have gotten jobs and are off welfare, according to the department. The number of recipients who supplement their benefits by working rose from 27 percent two years ago to nearly 50 percent in April. The people who are moving toward full employment, however, probably still need that welfare check. Those who had left welfare entirely and worked for a year were earning an average of $13,764. The federal poverty level for a family of four is $16,700.

Some lawmakers pushed a plan that would put more state money into the pockets of the working poor.

The idea is similar to the Earned Income Tax Credit that eligible families can file for along with their federal income tax returns. Last year, a family that earned $9,390 to $12,260 and had two or more children could receive a maximum of $3,756 in federal money.

The federal credit was created in 1975 under President Gerald Ford and has been expanded by both political parties since then to include more families.

As a family's income goes up, the benefits decline, and those earning more than $30,095 are ineligible to apply. A national study last year found that about 70 percent of the beneficiaries were single parents moving off welfare and 30 percent were low- income two-parent families.

Eleven states have enacted their own state versions of the program, including Wisconsin, a leader in the welfare-to- work movement.

In the Illinois House, a proposal suggested by Rep. Patricia Reid Lindner would phase in an additional state credit amounting to 10 percent of the federal credit. The Sugar Grove Republican's plan would increase the credit to 20 percent of the federal level after two years. At its highest, the credit would add $670 in state dollars to the federal money a family could earn, according to advocates of the plan.

Chicago Democrat Barack Obama introduced a version in the Senate calling for a 20 percent match. Obama notes that Illinois taxes are particularly harsh because someone earning as little as $2,000 might owe a state income tax.

As many as 750,000 could earn the credit, costing the state $237 million the first year of the program, say proponents. That would go up as more become aware of and file for the credits. Still, the state would offset some of its expense through $40 million in so- called "use it or lose it" federal money it would receive by offering the credit.

But such legislation hit a brick wall. First, the revenue department says the state's current one-page form would become cumbersome if work sheets on the credit were added.

But the main problem is the price tag. Even those who are sympathetic can't get beyond the financial hit.

Sen. Steven Rauschenberger, an Elgin Republican who chairs the appropriations committee, says, "It has real merit because it rewards work. But the cost is too big."

If that kind of money is going to be spent, Rauschenberger argues, the state is better served by creating incentives for businesses to stay in Illinois. High property taxes, for example, send many companies over the border, he says.

Providing incentives for businesses is important, agrees Obama. But legislators should monitor the results of those programs as carefully as they do programs for the poor.

"When we discuss welfare reform, the cost is included in the debate," says Obama. "But when we discuss [business] tax breaks, the cost isn't part of the discussion."

Illinois Issues June 1999 / 7